The Japanese Economic Threat 1970 – 1990
Echoes that ring familiar now with China
Note: I attended grad school at University of California at San Diego, Department of Pacific International Affairs – now changed focus and called School of Global Policy and Strategy. I studied Japanese Business for 1 year and Japanese language for 7 semesters. I left before graduation for an international job in England. This was the height of Japanese phobia.
The current conversations about Chinese American foreign relations very much echo the conversations about Japanese American foreign relations in the late 1980s. There are significant differences, but many similarities too.
Basis of the fear about Japan
The rise of fear with Japanese economic might was displayed by a growing trade imbalance. There were two major and interrelated issues that caused this deficit. It was the unease in that growth that evolved into turned to anger in the relationship.
The first major indicator was a surge in automobile imports. The big 4 car companies dominated US and World Markets before the 1970s. These were Ford, General Motors, Chrysler and American Motors. Japanese imports went from less than 200,000 cars in 1968 to almost 2 million cars in 1980. This was a very visible challenge to American world dominance.
The growth of Japanese exports was devastating to the American car makers. It was also very preventable. In the mid 1960s to the mid 1970s efforts were made to control emissions. The first emission standards were set in California in 1966 and adopted by the rest of the country in 1968. These first emission standards where around visible exhaust systems given serious air quality issues in California cities. California and then the nation eliminated “leaded” fuel in the 1970s.
In Japan, the same emissions standards were being legislated. But in both nations major car companies fought the regulations. After losing those battles, they fought - more successfully - to delay the implementations of these requirements. But two Japanese car makers, Honda and Mazda, successfully met the standards before they were mandated. While the “big 4” were deciding which cars could meet the new standards, the two Japanese automakers were joined by other manufacturers in exporting to California, primarily Datsun (now Nissan) and Toyota.
The newly introduced emission standards were met in many ways, including the introduction of smaller, lighter vehicles that had better mileage – and hence less emissions. These cars had less of a profit margin and were seen as lower quality, and so the American automakers did not respond quickly. In 1973 an oil embargo was implemented against many western countries. With the price of oil jumping by a factor of 4, gasoline price and mileage were suddenly very important to consumers. And the Japanese car makers were well placed and picked up market share.
The US car makers did not counter the actual improvements versus Japanese for over a decade. When a reasonable car was created, the Chrysler “K-car”, politicians lead an anger charge that the cost of a K-car in Japan was almost double the price in America due to import restrictions in Japan. In truth the cars would have needed extensive changes to be exported to Japan, but that was overlooked in outrage. This led to a 1981 voluntary export restraint by Japan. An unintended consequence was the movement of Japanese auto manufacturing inside the US, which increased the “Japanese” car share of the US market at the expense of the Big 4, then Big 3 automakers.
The second factor that caused fear in the United States was the idea that Japan was using trade tools to undercut the prices of American manufacturers well outside of the automobile industry. This was shown in a trade deficit with the United States that grew quickly from the 1960s to the 1990s and continues today.
1970s early $2 Billion deficit
1970s late $10 Billion deficit
1985 $50 Billion deficit
1993 $59.3 Billion deficit
2023 $60.2 Billion deficit
In the late 1990s the trade imbalance shrunk as fewer cars manufactured in Japan dropped, but US manufacturing of Japanese cars grew exponentially. Japan’s move in manufacturing from low wage and simple exports to high value exports required a lot of importation of American precision instruments.
Echoes in Chinese American trade
The response to Chinese trade has been similar to the US response to Japanese trade issues of the 1970s, albeit it not around automobiles. Early in the bilateral relationship the US trade deficit with China was near zero because there was little trade between the countries. In the 1980s freer trade became the norm.
In 1980 the trade status was moved from China as a “Warsaw Treaty country” (category Y) to be treated as “new trading partner” (category P). In 1983 China was reclassified as an “American Ally country” (category V). In this period most Chinese exports were low value goods, particularly clothes and textiles.
In 2001 China joined the World Trade Organization with the full backing of the United States. The expected result was that China would have to export and import with the same rules as any other country.
It was thought that this would open China to more US Exports and bring China into the “community of nations”. This did not happen. Instead, China continued its policies and implemented new barriers to trade. The entrance of China into the WTO also encouraged the foreign direct investment into China to take advantage of the low cost of labor and the availability to export freely. The US Trade Deficit grew:
1978 $20 Billion deficit
2001 $83 Billion deficit
2008 $266 Billion deficit
2015 $367 Billion deficit
2018 $418 Billion deficit
The Trade Wars since 2018
The continued trade imbalance with China prompted escalating conflicts with the US. The US accused China of subsidizing manufacturing and limiting imports of critical new technologies. The US accused the Chinese of currency manipulation to undercut America manufacturing, and the entrance barriers to American financial services. These arguments were made throughout the George W Bush and Obama administrations.
The Trump administration continued accusing China of the manipulations noted above. Even more critical were the allegations that China was stealing Intellectual Property (IP) from firms that opened Chinese locations. In 2018 the US imposed tariffs on goods from China, and China responded with tariffs of their own. The dispute grew to include bans on many goods traded between the countries, primarily to benefit farmers and manufacture within the countries. Although there has been some movement in removing many bans and lowering some tariffs, the Biden administration has continued most these policies.
Current State
The pandemic of Covid-19 stalled further discussions on bilateral trade between the countries. The trade deficit has grown steadily since 2020, after the major slowdown driven by Covid.
The first (modern) pushback from the American public against China was not tied to trade. Relations were tested by the Tiananmen Square demonstrations and Chinese suppression of it. After a short period of normalizations (including entry to the WTO) the Chinese US foreign relations policies degraded. The areas of disagreement and later conflict included the status of Taiwan, the militarization of the South China Sea, and the increased military capabilities of China.
The US political and military establishment sees the growth of the Chinese military and trade power as a direct threat to the country. China’s establishment and public opinion see the Chinese military and trade power as a natural growth and resumption of their rightful place in the world.
Since the Russian invasion of Ukraine, bilateral relations have worsened. China’s support of Russia is viewed as chance to prop up the Russian economy and a method to bypass restriction on critical resources.
In both trade and foreign relations China and the United States view each other as the aggressive party. Ending the trade problems with China will not follow the Japanese US trade model, because the United States and China are adversaries, not allies.
We don’t know what comes next. We might move to peaceful coexistence. We could expand our differences to a type of cold war, but with trade included in the conflict. Many people tend to see the possibility of a hot war breaking out accidentally between China and the US over Taiwan or a mistake in the South China Sea as a probability, although that is not my opinion.
In any case, it seems our China phobia will not fade nearly as easily as our Japan phobia did.